Do You Qualify for Student Loan Income-Based Repayment Plans?

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Graduation HappinessLate in 2011, according to estimates by the Consumer Financial Protection Bureau, total student loan debt in the United States passed the $1 trillion mark.

That’s a lot of student debt.

Many graduates struggle to find jobs, or work in low-paying jobs that don’t come close to allowing them to afford their student loan payments. It’s a lot of work to pay for college, and many students keep paying for years following graduation.

However, there are options. And you don’t have to just rely on forbearance or deferment. The federal government offers a Income-Based Repayment (IBR) plans for those who have a high amount of debt relative to income.

Who Qualifies for IBR?

In order to take advantage of this program, you need to have some level of financial hardship. The government information on IBR views partial financial hardship in the following terms:

[T]he montly amount you would be required to pay on your IBR-eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to pay under IBR.

Basically, you use the calculator provided by the government to compare what you (and your spouse, if you have one) would normally pay in a standard plan, as compared to what you would pay with an income-based solution. By answering the information on the calculator, you can quickly see whether or not you quality.

The federal loans that are eligible for IBR include Direct subsidized and unsubsidized loans, as well as Direct PLUS lonas made to graduate and professional students. All Federal Stafford loans, FEEL PLUS loans made to graduate or professional students, as well as FEEL Consolidation Loans (without underlying PLUS to parents) are also eligible.

It’s important to note that PLUS loans to parents and FEEL Consolidation Loans that include PLUS loans to parents are not eligible for IBR. Private student loans are also ineligible.

You are required to submit income documentation each year in order to ensure that you still qualify for IBR, and to re-figure your monthly payments. As your income rises, you are phased out of IBR.

What are the Advantages of IBR?

IBR is designed to help graduates avoid defaulting on the student debt — something that can have very serious consequences. Payments are based on your income and the size of your family. Your payments are connected to what you earn, limiting your requirement to 15% of your discretionary income. Additionally, there are situations in which your interest might be subsidized by the government, and there are limits on how much interest can be capitalized.

If you continue to pay, and if you meet certain qualifications, if you haven’t paid off your student loans under IBR, the remainder might be forgiven after 25 years (you might owe taxes on the amount forgiven). If you work full-time for a public service organization, and make all of your payments on time for 10 years, you might be eligible to have your debt forgiven after that time period. With the right planning, IBR, combined with the right job, can result in a decent portion of your student loans being written off.

It’s important to understand, though, that you might end up paying more in interest over time. The point of IBR is to spread out your payments over 25 years, rather than requiring repayment in 10 years. As a result, the longer time period can result in higher interest overall.

Carefully consider Income-Based Repayment by visiting the Department of Education’s page on IBR.

(Photo: jameskm03)

{ 7 comments, please add your thoughts now! }

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7 Responses to “Do You Qualify for Student Loan Income-Based Repayment Plans?”

  1. admiral58 says:

    I think most students should try for the income based repayment option

  2. I’m surprised I hadn’t heard of this program. What a wonderful idea as the student/new professional makes more money they pay more on their loan. It’s a great idea.

  3. Gustavo says:

    A lot has been written about the monstrous level of student debt, but there’s one question I haven’t seen anywhere: how much of that is actual debt, vs. how much is predatory fees and interests?

    It’s insane to shackle our younger generation in such a way; how much potential for progress, invention, enterprise, and such will be absolutely wasted, because these kids will be scrambling to pay these insane fees and interests, for the short-term profits of a few people?

    This is truly madness.

  4. Jack Fraud says:

    Dear Morons,
    Just STOP Paying your student loan debt and ALL Credit cards. The sooner you default the better. Go on Food Stamps and sponge of the government with section 13 housing.
    Its awesome. The sooner the USA defaults on its worthless paper, the better. All will be worthless, and you will be able to get a zillion dollars that are worth nothing and pay your loan back with pieces of federal reserve paper. it’s that simple! you can thank me after the currency crisis. In the mean time, hurry up and become am obama slave.


  5. admiral58 says:

    I’ll have to look into to see if my son qualifies

  6. Bob says:

    All these people bitching and complaining about college debt that they agreed to when they needed/wanted the money. They knew the terms and still signed up for the loans. I see on facebook people have started petitions

    to try to get out of what they owe. I hope this never goes through because it’s unfair to the people who went to schools that they could afford. And if this was to go through what about all the people who worked 2 or 3 jobs and just payed off their school loans? to bad for them?

  7. skylog says:

    i like many aspects of this program, to help those that need the help; however, i feel the bigger issue is the just about insane cost of a college education. this increase in tuition costs has greatly outpaced nearly all other things. this needs to be fixed.

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